Paulson Foresees Tough Year

The U.S. Treasury Secretary outlines the challenges facing the U.S. and global economies as finance ministers and central bankers gather in Washington, D.C.
By TSC Staff ,

U.S. Treasury Secretary Henry Paulson warned Saturday that the global economy faces a "more difficult year" in 2008 after recent years had favorable conditions. His remarks came after Paulson hosted a meeting of G7 central bankers and finance ministers at which they expressed concern about the dollar's slide vs. other currencies.

Challenges will come from adjustments in the U.S. economy, financial market stess, higher commodity prices and inflation, Paulson said, in

remarks

prepared for a meeting Saturday of the the International Monetary and Financial Committee, which advises the board of the International Monetary Fund.

"Downside risks will vary, and many European and emerging market economies have stood up relatively well so far to the recent financial turmoil, but no economy is entirely immune from global forces," Paulson said . 

The Treasury secretary noted the U.S. economy is undergoing a singificant housing corrrection, which together with high energy prices and financial market stress, is "penalizing" U.S. growth.

Paulson's comments come as the world's economic policymakers are converging on Washington, D.C. for a series of meetings. On Friday, Paulson hosted central bankers and finance ministers from the Group of Seven industrialized nations.

In a

statement

issued Friday evening, the G7 group expressed concern about recent currency swings.

"Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability," the statement said. "We continue to monitor exchange markets closely, and cooperate as appropriate. We welcome China's decision to increase the flexibility of its currency, but in view of its rising current account surplus and domestic inflation, we encourage accelerated appreciation of its effective exchange rate."

The statement stopped short, however, of saying G7 members would intervene in global markets to prop up the dollar.

The World Bank is also holding its spring meeting this weekend.

This article was written by a staff member of TheStreet.com.

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